Abu Dhabi Invests in Vevo, the Major Labels’ Upcoming Video Site

Universal Music Group, Sony Music, and the other two major labels that are expected to join the Vevo music video site before it launches, have found the investor they have been looking for: Abu Dhabi Media, owned by the Abu Dhabi government. An All Things Digital source could not verify the size of the transaction, but said it values Vevo at $300 million. Google is also involved, in that it will operate the back-end of the site in return for a share of revenue, but does not own part of Vevo.

A valuation of $300 million might seem a bit high for an un-launched website that will feature the same music videos that have already been available on YouTube and elsewhere. But the labels’ new thinking is that online video services, with their captive audiences of viewers to whom video and overlay advertisements can be served, have more revenue potential than free, on-demand online music services, which listeners tend to use while their eyes are focused elsewhere.

Universal Music Group, the largest record label in the world, formed Vevo by making a deal with Google to make a separate site where the label will be able to post all of its official music videos, as well as backstage interviews, tour bus diaries, and user-generated videos that feature its music. Universal (and Sony, which joined second) hope that by only including their “high quality” content, the site will be able to charge advertisers more than YouTube does, with its mix of official content and other videos.

Independent labels represented by A2IM have also been in negotiations with Vevo, as have EMI and Warner Music Group, which are expected to join before the service launches.

Abu Dhabi Media, created by the Abu Dhabi government in 2007 and which has also placed bets on national television channels and radio stations such as Abu Dhabi FM and Holy Quran FM, is the first outside investor in Vevo. Many in the venture capitalist community have p0inted to investors’ general reticence to invest in anything related to digital music these days, having been burned too many times by start-ups inability to cover the labels’ licensing demands. However, because the labels own Vevo, and don’t have to pay themselves a licensing fee.

Official and user-generated music videos that appear on Vevo are expected only to be available on Vevo, which will then syndicate the videos out to sites like Yahoo, as well as YouTube itself, where the majority of the most popular videos are music-related.